Create a Playbook
Employers need to establish a measurement period for determining each ongoing employee’s average hours per week. The period cannot be less than three months or more than 12 months. An administrative period of no more than 90 days can follow to give the employer time to figure out who will and won’t receive coverage during an upcoming “stability” period, and to get employees enrolled or notified of upcoming disenrollment.
The stability period must be at least as long as the measurement period but no less than six months. During the stability period, the IRS assesses A and B penalties, in both cases treating workers as either full-time or part-time as had been established during the measurement period.
Employers are under a tight time frame to find technology and administrative solutions for tracking employee hours. Those planning to use a 12-month measurement period and 12-month stability period for testing employee eligibility effective January 1, 2015, needed to have begun tracking hours in the fall of 2013. To comply with the rules, employers that haven’t been tracking employee hours will have to look back at prior payroll records to populate a compliance system or tool retroactively, and those tools will need to be fully operational by the fall of 2014. That process will occur every year.
Keep Score on Paid and Unpaid Hours
Quantifying hours to distinguish employees’ full-time vs. part-time status may not be as simple as looking at the number of hours worked. The measurement must include the hours employees are paid and not working, such as during vacation or, in the case of union workers, layoff, to determine coverage eligibility.
Employers have options with respect to crediting unpaid leave hours. If the employer is subject to the Family and Medical Leave Act (FMLA), it can either credit the employee with unpaid FMLA leave hours, or shorten the measurement period so that it doesn’t include the leave period. Similar rules apply if an employee takes an unpaid leave for jury duty or military service.
Other breaks in employment are not as clear-cut. Basically, if the unpaid break is less than four weeks, then employers must treat the worker as an ongoing employee, but they do not have to count those leave hours during the measurement period.
If the employee is off work for at least 26 consecutive weeks, the employer may treat the employee as a new hire upon return. There is another optional rule, the “rule of parity,” for employees with no credited hours over a period of at least four weeks but less than 26 weeks. Under the rule of parity, if the time of absence is at least four weeks and is longer than the employee’s previous period of service, then the employer can treat the employee as a new hire upon return.
Mary Bauman is an attorney at the law firm Miller Johnson in Grand Rapids, Mich., and Don Garlitz is executive director of bswift Exchange Solutions, a provider of benefits software and services.